Last Signal: 7/14/00, SELL
Dow: 10,806.74 OTC: 4243.02
The Ratio managed to bounce slightly, but relatively unimpressively last week after the markets rallied each day. It may bounce further this week but would have to change quite significantly to turn our indicators bullish again.
TUESDAY, August 8, 2000: The markets have convinced themselves that all is well and the Fed will no longer find it necessary to raise rates further, as they have basically rallied for the past 6 trading days to push up against the intermediate resistance we’ve been discussing at 10,875. A close above this key level would confirm a short term bullish reversal, but with lots of further resistance above the market and many of our trading indicators extremely overbought, we still question the market’s ability to sustain itself for much longer before the next setback.
Initial support remains at 10,500 - 464 from the 7/28 low. Below that, the Dow would be set to test critical intermediate support at the 6/30, 10,336 low. An eventual break below this level would likely usher in a cascade of selling to a test of the 9732 March low. The Dow pushed briefly through key resistance at the recent 10,874 high before settling just below it yesterday. While we still think that (much) lower prices remain ahead [as calculated in the June issue of Reality Check], they may be put off until the summer rally that we had thought ended already finally runs its course. Higher resistance is found near 10,960, 11,140, 11,220 and 11,420. Any push above this would make it likely that the January high at 11,750 will be approached and tested.
TREASURIES
Treasury yields took a breather after reaching a low near 5.70% in the past few days. The markets are convinced that the Fed will refrain from a seventh rate hike wen they meet on August 22. While we can see their reasoning, we think the markets may be overly confident as the Presidential race is heating up and may put off any further actions beyond August until after November 4. Also affecting market perception is the continued large supplies of corporate debt that is coming to the market. This is still being offset by the Treasuries long term bond repurchase program, but this is beginning to run its course, as they are scheduled to buyback the rest of the authorized $30 billion of bonds by early in September.
So, while we remain bullish on bonds with our yield objective still at 5.50%, the best thing the Fed may do this month would be to go ahead and get another rate hike out of the way. This would likely take the markets by surprise as they would perceive it as the Fed’s last needed tight policy initiative before the economy shows more concrete signs of responding. It would clear the way for more optimism and the potential for the rally to move toward its completion. A move to our objective would complete a .618 Fibonnacci retracement of the entire rise, from the 4.69% low of September of 1998 to the 6.75% high reached this past January. Initial support was recently established just beneath 5.95%, with more at 6.05%. A move above this would confirm a short term bearish reversal, with next support at 6.20 - .25%, 6.32% and 6.40%. Our longer term bond indicator, the Dow 20 Bond Average remains bullish and the Treasury Department’s buyback program should remain supportive through August. Resistance is at 5.72%, 5.65% and then or targeted 5.50% level.
GOLD
The XAU & Gold have been attempting to make a stand just above their more critical levels of long term support, but have not shown enough evidence to draw any bullish conclusions yet. With bearish sentiment fully entrenched, the potential for a sharp rally on any further breakdown is growing, as the lower prices are likely being discounted by the markets now. At some point, this selling would attract short covering and other related buying (of course, this is just a hunch at this point).
We stated last week that "the potential for testing major support at the 8/31/98, 48.73 all time low remains close at hand, and the selling climaxes (on the XAU & Newmont Mining the previous week) were not in themselves enough to rule it out." This potential remains close at hand. A new P&F buy signal would be given with a rally through initial resistance to 56, which would now suggest the bottom was in. Next resistance is at 59 and then at 64. This would be significantly bullish. Higher resistance is at 69.
PORTFOLIO CHANGES
Tuesday, August 8, 2000: -- None Today
Article contributed by Mitch Harris: President, Market Trend Realities & Editor,
The Reality Check Newsletter, and reprinted here with permission.
Market Trend Realities (MTR) is a Registered Investment Advisory which manages personal, corporate, Trust, and retirement accounts on a fee only basis. Several low cost, flexible management fee arrangements are available. Investment Advisor, Mitch Harris has studied the Point & Figure Charting Method under the direct supervision of Michael Burke, Editor of the prestigious Investors Intelligence research organization. Management is based on a unique combination of technical analysis methods and tools which include, The Point & Figure charting method, Elliott Wave Analysis & techniques, industry group analysis, cycle analysis, Relative Strength Analysis, Stochastics, and investor sentiment studies. MTR offers a very uniquely structured managed mutual fund program using the RYDEX family of mutual funds, which offer outperformance potential whether equity markets are rising OR falling! Inquiries are welcome by calling us at
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